How to stay in control of your finances
As you grow, you stretch your business past its current
capabilities. Growth will eat into your reserves fast: so you need
to become more sophisticated in how you manage your finances. You
will be investing in new resources, so you'll need to use
appropriate systems, controls and planning to keep an eye on your
financial position. This guide will give you a better
understanding of how to do this.
Getting your accounts in order
- With all the positives of growth, you can expect concomitant
cashflow pressures, staffing issues and supply shortfalls. If you
keep a close eye on forecasts and accounts, and prepare for
shortfalls, this should not hamper your business's
development.
- You need accurate and up-to-date financial information if you
are going to support the growth of your business.
- You should review and improve your accounting systems as
you expand, as those you started out with will likely be unable to
cope.
- This means bringing the handling of your accounts in-house: you
have to take ownership of your finances as your business becomes
more complex.
- To ensure the accounts are produced professionally, you should
look at hiring a finance director. They will be able to use
accurate financial figures to help you make key decisions in the
business and continue your growth.
Using the data
- You need to know exactly how much profit is in your
business if you are going to continue your expansion
- Have you got enough money to employ more staff or buy vital new
equipment?
- Do you need to look for outside investment to boost your
expansion?
- Accurate data can be used to help with all the other big
decisions related to growth such as sales, salaries and stock
levels.
- If you have relied on gut-feel or instinct to make these
decisions in the past -- or if you have used separate departments
to generate different revenue numbers - reconcile yourself to the
fact those days are over
- Your decisions should be based on accurate, company-wide
financial information provided to you by an FD and/or through the
use of financial business software
Future plan
- A financial plan should assess the financial state of your
business and your financial aims: it will help you plan for the
future, set targets and monitor progress
- Will your sales volume and gross profits cover the increased
costs of your business growth?
- Take time once a month to compare your financial predictions
with reality and see how they are matching up
- You should also look at benchmarking your financial
performances with other companies in your business sector to see
how you compare
Checklist
- First off, trim your overheads, chase debtors and negotiate
better prices with suppliers
- Bring your accounting in-house and update your accounting
systems
- Put budgeting and planning systems in place to help you keep
track of your growth and of your finances
- Set time aside once a month to compare your financial position
with our financial predictions
- Consider taking on a finance director
FAQ
How can I tell if my business is growing too
quickly?
Watch out for rapid growth: if you don't keep it in check, it can
hurt your business as much as no growth at all. If expenses are
exceeding revenues even while your turnover increases; and if you
keep taking out loans to keep operations going; and if productivity
is not meeting demand, you have a rapid growth problem. The
decision to grow a company should be based on sound financial
information, market knowledge and analysis: don't get carried away
by early success.
Jargon buster
Organic growth: growth that comes from within a
business, often occasioned by increasing sales and efficiency
Inorganic growth: growth occasioned through buying
other businesses
Resources
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